Where Are the Neurofinancial Software Applications?
August 25th, 2009
Posted by Zack LynchIn chapter 4, Finance with Feelings, I talk about the emergence of neurosoftware applications that leverage neuroeconomic research into decision making to improve our understanding of individual economic behavior and the vicissitudes of financial markets. As with each previous revolution, the financial sector adopts the latest innovations to improve capital efficiency. The Neuro Revolution is no different. In response to requests to emails from people looking for more info on software that could help them "understand how their emotions influence their decisions" or "tame their emotions" I'm writing this brief neurofinance post.
Realize that these applications are just beginning to be developed. The more sophisticated work is still being carried out in the research labs of people like Andrew Lo, Dmitry Repin, Xiao-Jing Wang, Paul Zak and others. If you are serious, then I'd highly recommend attending the upcoming Society for Neuroeconomics meeting Sept. 27-29 in Evanston, Illinois to get insights into cutting edge research. Richard Peterson, whose story I describe in detail in the book founded a $50M hedge fund, MarketPsy Capital, that uses special emotion detecting algorithms to help time trades.
Evidence of the evolution of these neurofinancial software applications is everywhere. Sunday's NYTimes carried a story, Mining the Web for Feelings no Facts, that discussed several companies developing "sentiment analysis" systems. Perhaps more interesting was Monday's WSJ article "The Mistakes We Make - and Why We Make Them" which is loaded with basic ideas for neurofinancial applications. In the article, Mr. Statman, a professor at Santa Clara University points out eights ways to avoid the cognitive and emotion errors that lead to poor investing. One clear theme throughout his musings is that "regret" plays a pivotal role many of our worst mistakes. Also, here is a post I wrote in 2003 with some oldies but still undeveloped goodies.
So the bottom line is this: the future isn't here yet, go invent it.
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